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Chapter 10: Q. 14 (page 229)

This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for botb occurrences?

a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.

b. There was a technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.

c. Labor productivity increased throughout the year, and consumers significantly increased their total planned purchases of goods and services.

d. The capital stock increased somewhat during the year, and the quantity of money in circular. tion declined considerably.

Short Answer

Expert verified

a. Option (a) isn't correct

b. Option (b) is correct

c. Option (c) is correct

d. Option (d) is correct

Step by step solution

01

Not correct (a)

a) The earthquake destroyed a part of the nation's capital stock. a discount in capital stock and reduction within the purchaseof products and services would shift long-run aggregate supply curve leftward and reduce the equilibrium real GDP.
Therefore, option (a)isn't correct.

02

Correct (b)

b) Due to the technological improvement the long term aggregate supply curve right and hence increases the important GDP. On the identical time, increase in cash in hand ends up in fall in rate within the economy. As a results of which the investment expenditure increases within the economy and also the aggregate demand curve shifts right. the worth level within the economy rises. Thus, this might be the explanation of accelerating both the 000 GHDP and index number within the economy.
Therefore, option (b) is correct.

03

Correct (c)

c) Labor productivity increased throughout the year and consumers significantly increased their total planned purchases of products and services. This ends up in a rise in real GDP and also the index number.
Therefore, option (c) is correct.

04

Correct (d)

d) The capital stock increased and also the quantity of cash in circulation declined. This ends up in the real GDP to stay sameand therefore the supply curve shift rightward.
Therefore,the right answer is option (d).

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Most popular questions from this chapter

Explain how, if at all, each of the following events would affect equilibrium real GDP and the long run equilibrium price level.

a. A reduction in the quantity of money in circulation

b. An income tax rebate (the return of previously paid taxes) from the government to households, which they can apply only to purchases of goods and services

c. A technological improvement

d. A decrease in the value of the home currency in terms of the currencies of other nations

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?

As more of the nation's systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time?

Explain whether each of the following events would cause a movement along or a shift in the position of the L.RAS curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.

b. There has been an 8 percent increase in the quantity of money in circulation that has shifted the ADcurve.

c. A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast.

d. Inflation has occurred during the roast year as a result of rightward shifts of theAD curve.

Why might a return of the U.S. population growth rate to its prior level also tend to boost the growth of U.S. Long-run aggregate supply? (Hint: Recall that real GDP growth is generated by the contributions of growth in labour and capital and growth in productivity of these resources.)
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